Multiple Time Frame Trading
09/18/2014 6:00 am EST
Day traders are mainly concerned with the short-term time frame while other traders are more interested in the long-term. However, as John Hoagland of TopStepTrader.com illustrates, having “other time frame” participation on your side in trading is important.
Our markets are made up of participants with widely varied goals, motivations, expectations, and requirements. Add to that the varied opinions and actions that create the price discovery while traders attempt to decipher and predict, or react to all the events and news that can have a profound effect on the auction process.
If you are only looking at the market from your time frame—and I would say most of us as day traders would be defined as very short-term traders—you are missing out on valuable information that might bring to light actions taken by traders with far longer time frames and far greater influence on the marketplace. While these longer time frame participants may hold positions for weeks or even years, the day or days they execute trades, they are a day trader. These "other time frame traders" may take days or weeks accumulating positions. Making yourself aware of price levels that could bring these players into the market, devising a way to detect their participation and, at least, not fighting them can save great losses.
So always be thinking about the market in context. What looks like great trade location in the day time frame might be terrible trade location in a longer time frame. Good short-term trades do exist in poor, longer time frame location—you just better know your reasons for the trade and when those reasons no longer exist—in order to stay out of trouble. Reasonable risk and profit targets/zones that are taken when hit can help. Make sure your risk is worth the reward. Any time you have that "this is the trade I've been waiting for" feeling in poor longer time frame location (unless you have good other time frame participation on your side), it's been my experience, its time to get out.
By John Hoagland of TopStepTrader.com